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Market Commentary

 

Thursday’s bond market initially opened in negative territory again, extending yesterday’s intraday major sell-off that caught everyone by surprise. Fortunately, it has since eased back to yesterday’s closing level. It is the stock markets that are selling this morning with the Dow down 161 points and the Nasdaq down 85 points. The bond market is currently down 1/32 (3.18%), which with yesterday’s disaster should push this morning’s mortgage rates higher than Wednesday’s early pricing by approximately .375 – .500 of a discount point. Just how much of an increase you see this morning will be determined by how much of an intraday increase you saw late yesterday. 

Yesterday ended up being an ugly day for the bond and mortgage markets. The selling started shortly after most lenders posted rates for the day and picked up momentum through early afternoon, breaking through resistance levels that we had been relying on to keep mortgage rates in check. Believe it or not, there was no clear cause for yesterday’s sell-off. There were a couple of unfavorable events recently that may have formed a perfect storm scenario and snowballed into a horrible day for bonds and mortgage rates. But there was no single report or event that caused the market to sour yesterday. The benchmark 10-year Note yield, which was at 3.09% this time yesterday, moved right past 3.12% that was considered a key point, eventually closing at 3.18%. Along the way came many lender rate revisions, some with more than one before the end of the day. 

Bonds looked during overnight and early morning trading as if it would be another bad day today with the 10-year hovering around 3.22%. We can’t exactly say there is some good news in this, but it is encouraging that yields have retreated from those early morning low points. Many in the industry feel that yesterday’s selling was overblown and not justified. The fact that we are seeing some improvement from earlier lows does help support the theory that the worst is over. That said, we need to watch the markets closely today as we certainly did not see yesterday’s move coming. We also have a key piece of economic data set for release tomorrow that can cause noticeable moves in the markets by itself, let alone in a time of instability. 

Today’s two economic reports were uneventful for the most part. Both gave us unfavorable results, but neither are considered to be important releases. The weekly unemployment update showed that 207,000 new claims for unemployment benefits were filed last week, down from the previous week’s 215,000 initial filings and lower than the 210,000 that was expected. The Factory Orders report revealed a 2.3% rise in new orders for durable and non-durable goods during August. Analysts were expecting to see a 1.8% rise, hinting that the manufacturing sector was stronger than expected. Due to the forces driving trading right now and the fact these are low and moderately important reports, they have had no impact on today’s mortgage pricing. 

Tomorrow’s big release is September’s Employment report. The Labor Department will post September’s employment stats at 8:30 AM ET tomorrow morning. The report is comprised of many statistics and readings, but the most important are the unemployment rate, the number of new jobs added or lost during the month and average hourly earnings. Current forecasts call for the unemployment rate to slip from 3.9% in August to 3.8% last month, an increase in payrolls of approximately 185,000 and a 0.3% increase in average earnings. Weaker than expected readings should rally bonds enough to improve mortgage rates, especially if the stock markets react poorly to the news. Noticeably weaker readings could help recover a good part of yesterday’s losses. 

If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Lock if my closing was taking place between 8 and 20 days… Float if my closing was taking place between 21 and 60 days… Float if my closing was taking place over 60 days from now…

 

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